Wednesday 23 March 2011 12.34 EDT
First published on Wednesday 23 March 2011 12.34 EDT

Kitty Ussher: 'There is a fundamental contradiction at the heart of government economic policy'

There seem to be two separate things going on at the moment: what the government is saying about the economy, and what is actually happening in the economy. Nowhere was that disjoint clearer than in today's budget.

The chancellor is hoping that his budget for growth will become a self-fulfilling prophecy. There is certainly some news that will help: lowering corporation tax and easing planning restrictions will make it easier for large corporations to invest some of the cash they have been hoarding. A symbolic, if very small, commitment to support new homes for first-time buyers could send a signal of confidence to the construction sector that had begun to look wobbly at the end of last year. And nobody can dispute the importance of apprenticeships.

However, the problem the chancellor faces is that he had already talked the economy firmly down in his first few months in the job. After an encouraging start to 2010, there was a palpable fall in confidence from around August/September, which seems to have come from the fear that ran through the economy at the prospect of tax rises, spending cuts and job losses in this year.

There is little in today's budget that alters that fundamental picture. The pro-business measures that were announced will have a medium-term effect; they won't do much for now. They do not put any more money into the economy; the budget is fiscally neutral. The only thing that could have altered the public mood was a slowing of the cuts agenda, which did not come.

There is also a fundamental contradiction at the heart of the government's economic policy. They are explicit in their desire to "rebalance" growth away from cheap credit to real business activity. In the long term this is absolutely right. But at some point customers need to purchase things to get the economy moving again. With real wages falling and public sector job cuts still to come, this doesn't look like it will happen any time soon, despite the chancellor's attempt to start talking things up a bit today.

• Kitty Ussher is a former economic secretary to the Treasury. She is chief economist at the Demos thinktank

In his statement the chancellor claimed his budget would "reform the nation's economy, so that we have enduring growth and jobs in the future". That seems unlikely given that, according to the Office for Budget Responsibility that George Osborne himself established less than a year ago, his budget will actually lower growth and increase unemployment. The pound fell on the news.

Embarrassingly for the chancellor, the OBR has substantially downgraded its forecasts for GDP. Its revised growth forecasts for 2011 and 2012 are now 1.7% and 2.5%, down from 2.1% and 2.6% in November and 2.3% and 2.8% in June. They still appear overly optimistic compared with others, including those from the Organisation for Economic Co-operation and Development (OECD) (1.5% for 2011 and 2% for 2012); the National Institute of Economic and Social Research (1.5% and 1.8%); the Confederation of British Industry (1.8% and 2.3%); and the consensus of private forecasters (1.8% and 2.1%); though they are less optimistic than the Monetary Policy Committee (2% and 2.7%). And the OBR is forecasting that unemployment will be higher in both 2011 and 2012 at 8.2% and 8.1% compared with 8% and 7.7% just four months ago.

There was a bit of tinkering at the edges and a few welcome things including additional money for the green bank, an increase in the number of apprenticeships and further investment in science. There were a few tax cuts including further rise in the personal income tax allowance, a bigger than planned cut in corporation tax, plus a cut in fuel duty. But the overall package did not involve any further stimulus, being fiscally neutral, paid for by increase in North Sea taxation and a higher bank levy.

The announcement of 21 new enterprise zones is unlikely to have much impact on growth or jobs. If they were such a good idea, why didn't the chancellor announce them in his budget in June, given he had years to prepare? The world's foremost urban economist, Harvard's Ed Glaeser, has already come out in opposition to these enterprise zones because, he argues, they create few jobs, at high cost, "while it is hard to see the rationale for bribing enterprises to locate in less productive areas".

My view is that the austerity measures which have yet to hit, along with the spike in the oil price, ongoing sovereign debt issues and the dislocation in Japan, all represent significant downside risk even to these forecasts. This budget is bad for growth.

• David Blanchflower is the Bruce V Rauner professor of economics at Dartmouth College, New Hampshire

Eamonn Butler: 'Tax rise does not send a "Come and invest in Britain" signal to the world'

Britain's biggest growth industry today is emigration. High taxes and daunting regulation made some 1,379 UK citizens move to Switzerland last year, along with 80 of our leading finance firms, some of them £1bn taxpayers. Meanwhile, 16,000 non-doms have decided to make their money, create jobs and pay their taxes back home instead.

Today's further tax rise for non-doms does not send the government's "Come and invest in Britain" signal to the world. And the 50p tax band actually loses the Treasury money as people down tools or shift themselves and their cash abroad.

It's not enough to say he's reviewing it – it's an envy tax and the chancellor should scrap right it now.

On the positive side, the chancellor is sticking to the plan of raising the tax threshold year by year, to £10,000. I'd prefer it to be £12,000, which would take everyone on minimum wages out of tax, but the changes so far have already taken 1.1 million people out of tax. That is a huge incentive to get off benefit and into work, which in turn will boost the whole economy.If every small business took on one extra worker, unemployment would be zero and we'd be booming. The reason they don't is regulation. Today's commitment to exempt small firms from new regulations for three years is not enough. We should take small businesses out of employment regulation entirely, replacing it with a general "fair treatment" rule.

Rises in tax credits for small business research and development; expanding the enterprise investment scheme; extra funding for apprenticeships – none of these will actually promote growth. The aim should be to turn the whole country into an enterprise zone, with easier planning rules, more local decision-making and lighter regulation.

Tax cuts might lose the Treasury immediate revenue, but within 30 months they would pay for themselves in terms of rising business and employment. Now that is a budget for growth.

• Eamonn Butler is director of the Adam Smith Institute thinktank

Richard Murphy: A budget for tax avoiders everywhere but the Channel Islands

George Osborne said this was a budget to tackle avoidance. How wrong he was. Lawyers and accountants all over the country must be jumping for joy this afternoon – unless they're in the Channel Islands.

Employee benefit trusts – often based in Jersey – are going to be hit hard by this budget, and rightly so. These are last remnants of the age-old pursuit of avoiding PAYE. If they're consigned to history Osborne's done at least one thing right.

And Osborne gets full marks for tackling another abuse long overdue to be abolished – which is the absurd industry shipping CDs, DVDs, computer memory and other items from the UK to the Channel Islands and then straight back again simply to avoid VAT. At least £200m a year was lost in this way – and countless fuel wasted. This is a reform that will cost consumers a little, cost Jersey and Guernsey a lot, and which will put jobs back on the high street.

But after that it was almost all good news for tax avoiders. The new charity rules sound open to massive abuse – and the Charity Commission and HM Revenue & Customs will need massive resources to police them, which they haven't been given.

The inheritance tax rules on gifts will be keeping will writers in business for years.

A new 5.75% tax rate on the treasury functions of large corporations in tax havens (yes, you read that right – 5.75%) will see corporate money flowing out of the UK faster than it will be possible to count.

And big business gets more tax cuts for its foreign operations which will increase their tax planning opportunities almost endlessly.

The same will be true for non-domiciled people – now able to bring money into the UK tax free through a new loophole for investment.

Will this budget help beat tax avoidance? No, it won't. It's the biggest boost in the arm for the tax abuse industry that it's had in a long time. Osborne knows who his friends are.

• Richard Murphy is an adviser to the Tax Justice Network and the TUC on taxation and economic issues, and the director of Tax Research LLP

Presenting a budget for growth now is really a tacit admission of failure by the Tory-led coalition. The economy was already growing when they took office. Because of that, two key indicators were falling – unemployment and the deficit.

Now there is renewed economic weakness, which cannot at all be blamed on Labour. Because of government spending cuts the economy was sent into a tail-spin in the final quarter of 2010. This resumed contraction in the economy has inevitably also led to a reversal of the favourable trends in those two indicators. Unemployment is rising once more and the latest data on public finances shows that the year-long downtrend in the deficit has gone into reverse.

This gives the lie to the central claim of government policy – that all these cuts are necessary to reduce the public sector deficit. Their policies have led to a renewed widening of the deficit.

Today's budget does nothing to alter that. The downturn was caused by the government's decision to withdraw £9bn from the economy in the financial year just about to end. It has already announced plans to withdraw a further £39bn from the economy this year through spending cuts and tax increases on middle-income earners and the poor.

George Osborne has produced a "fiscally neutral" budget, which won't affect the growth outcome. The cuts already announced are equivalent to 2.7% of GDP, and require heroic assumptions about the willingness of the private sector to make up that shortfall. In fact, as the recent survey from the Institute for Chartered Accountants in England and Wales makes clear, the private sector is struggling under the weight of government cuts, with nearly half of firms reporting lay-offs as a result.

The priority is unchanged, taxes are cut for businesses while the overwhelming majority are clobbered by tax rises and spending cuts – a transfer of incomes from poor to rich.

• Michael Burke works as an economic consultant. He was previously senior international economist with Citibank in London